“Right now only some people get to live in big houses, travel widely, and buy lots of nice things, but many more people want the same opportunity. The global economy has a good track record of turning this desire into reality.” ~ Knight Frank, Wealth Report 2022
On April 24, 2023, LVMH (LVMHUY) became the first European company to surpass the $500 billion market-cap milestone. The stock has been on a tear in 2023, rising almost 30% YTD as of this writing. It’s not hard to see why—after reporting record profits for 2022, the company disclosed a 17% increase in sales YoY for 1Q 2023, doubling Street expectations. Small wonder that LVMH’s founder, Bernard Arnault, is No. 1 on the Forbes list of The Richest People in the World—a rarity in an echelon dominated by tech moguls.
While LVMH is a leader in the luxury retail industry, its results are not atypical. Companies targeting wealthy and affluent consumers have done well in recent years. During the pandemic and since then, luxury (SPGLGUP) has outperformed not just the S&P 500, but also the consumer discretionary sector, which it has traditionally been regarded as a part of.
Price Returns: Luxury, Consumer Discretionary, and S&P 500
After a contraction in 2020, the luxury market saw record growth in 2021 due to so-called “revenge spending” by consumers coming out of pandemic lockdowns. In 2022, demand for nice things continued to grow despite global inflation and economic uncertainty in the United States (the biggest luxury market in the world) and a continued lockdown in China (the second-largest luxury market). Except for 2020, global demand for personal luxury goods has been on a strong uptrend since 2009, reaching a total of EUR 353 billion (USD $387.8 billion) last year.
It is not just sellers of personal luxury accessories such as shoes or watches or handbags. For example, Ferrari (RACE -0.36% ), set a sales and earnings record in 2022—delivering 13,221 vehicles and $1.024 billion in profits. For Q1 2023, the Modena, Italy-based company reported higher profits, stronger margins, and a 20% YoY revenue increase, beating expectations on both top and bottom. Demand for its vehicles is so high that CEO Benedetto Vigna reported, “Our order book already extends into 2025.” Part of that is deliberate: Vigna has said, “At Ferrari, we always deliver one car less than the market demands. I can assure you that this will never change.”
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